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Sun, 02 Aug 2015 22:27:08 +0000SRA Framework 2.0en-gbHuman Rights commission of Pakistan demands immediate release of Down’s syndrome childhttp://www.brecorder.com/home/opinion/75060-human-rights-commission-of-pakistan-demands-immediate-release-of-downs-syndrome-child.html
http://www.brecorder.com/home/opinion/75060-human-rights-commission-of-pakistan-demands-immediate-release-of-downs-syndrome-child.htmlKARACHI: The Human Rights commission of Pakistan demands immediate release and protection of 11-year old Christian girl who was accused of blasphemy.

According to the some reports, the girl was carrying a shopping bag to dispose of used pages when she was stopped by someone who asked her to show what she was carrying. Burnt pages of Holy Quran were allegedly found in the bag. Local clerics alerted and soon a charged mob gathered outside the Rimsha’s house.

The 11-year old girl who is suffering from Down’s syndrome is held in jail in Rawalpindi. Blasphemy laws have been misused against religious minorities and unfounded allegations have led to violent attacks against the minorities.

This act will not only affect the safety of the minorities living in Pakistan but also create the great fear and panic in different religious sectors.

The Human Rights commission appeal to take all the measures to provide security to the little girl who is seriously ill and to the minorities so that they feel secure living in a so-called independent country.

Not that Pakistan was going through enough problems already yet another issue has raised its head – Pakistan Ambassador to the US Husain Haqaani’s resignation over a secret call to the Americans to reign in the Inter-Services Intelligence (ISI). The “Memogate” issue as it is being called is a dubious drama which is on the agenda of every politically motivated individual.

An American-based businessman with questionable credibility Mansoor Ijaz’s allegations should be viewed with a pinch of salt especially when our Ambassador has done so much to salvage the Pak-US relationship over the Raymond Davis saga and who kept the US aid flowing.

Mansoor Ijaz, an American of Pakistani origin based in Zurich, said in a column in the Financial Times last month that a senior Pakistani diplomat asked for assistance in getting a message from President Asif Ali Zardari to the then chairman of the US Joint Chiefs of Staff Admiral Mike Mullen.

This role of the ambassador has probably been a thorn in the side of anti-American and anti-democratic forces who are now trying to come up with another controversy.

As the controversy rages on Information Minister Firdous Ashiq Awan says the ambassador’s visit is routine, while Prime Minister Syed Yousuf Raza Gilani has denied Zardari’s involvement in the matter and assured the government’s commitment to the military and its institutions. The prime minister said Ambassador Haqqani will be allowed to clear his name when he returns to the country. Mian Nawaz Sharif, drawing mileage from this controversy has demanded an inquiry by an independent commission.

A word of advice. The government should not jump to conclusions on mere allegations, that also by a shady individual. It should come out with an explanation publicly after a thorough investigation.

Ambassador Haqqani is being called back to explain his take on the situation. Let’s reserve our judgment and see how the ambassador’s return will play out.

At a time, when our foreign office is at loggerhead with the US government, a known Pakistani Qawwal Rahat Fateh Ali Khan was arrested by Indian government on money-laundering charges, refusing to give access to Pakistan Embassy officials in India. Is this incidence anything to do with the Raymond Davis' case and the Americans want to extend pressure through India? Or is it another independent mischievous action by India to disconnect the ongoing negotiation between the two issue-riddled neighbourly countries? Or both. Whatever the reason it smells of a rat.

After restoration of Shah to Peacock throne, the Americans held sway in Iran, and under their tutelage Shah Mohammed Raza let loose an era of obscenity and debauchery on the pattern of the worst in Western civilisation, on one hand, and a reign of terror and oppression against intellectuals and political opponents on a scale that has few parallels in history. In the name and guise of reforms, dubbed 'White Revolution of the Shah and Populace' changes were introduced that antagonised all but his own sycophants. That set aflame the smoldering resentment against the Royal family, and his American advisors and supporters, into a virtual holocaust. The Shah had annoyed both the clergy and the intelligentsia, the students, and the 'Bazaris' - the real power-brokers and financiers of the Revolution that followed and shook the world. Shah's actions were devoid of all morality and fair play, and the widespread corruption and financial scams, the life-style of the privileged class in contrast with abject poverty of the majority of the population sowed the seeds of popular uprising and later armed conflict between the Shah's troops and the rag-tag opposition.

That was the time when the price of oil had escalated and the flows of petro-dollars were changing the entire landscape, particularly in the OPEC-member states and other oil producers. The glitter of ostentation of the Royal Court and its henchmen contrasted with the pitiful condition of the have-nots, and was a fertile ground for the remote-controlled revolution directed by Ayetollah Khomeini in exile. The street demonstration turned into an uprising that forced Shah to flee once again and for good, ringing the death knell of the ill-starred Pahlavi dynasty, who were upstarts any way, and started with a commoner - self-styled as 'Emperor'.

The question arises - what were the USA and its Western allies doing to help their protégé - the Shah in his contretemps? Very little, or nothing in fact, so much so that Shah could not even set foot on US soil during his days of wilderness and no country would accept him for a permanent refuge, till Anwar Sadat offered him the hospitality of Egypt to pass his last days, a few days after his temporary stay in a US hospital for treatment of cancer, that raised the ire of the Islamic Republic of Iran.

The US government had already frozen the personal assets of Shah and official state funds of Iran in US banks and ultimately seized them as bounty. Once the Islamic Republic claimed those, they drew a blank. The annoyance of fund's seizure, coupled with Shah's temporary entry into USA for medical treatment, were termed two major reasons behind the seizure of US Embassy in Tehran for 444 days, and the repercussions are still reverberating.

The Ayetollah's revolution in Iran inspired uprisings elsewhere, and has raised hopes of a Muslim renaissance in one form or another in most states with Muslim majorities. As expected, this goes against the grain of USA, and those champions of democracy are going all-out to defend their bastions of strategic importance, under the so-called democracies (ruled by despots) or traditional monarchies of 'Johnnies-come-lately'.

On November 25, 2008, the International Monetary Fund (IMF) approved the $7.6 billion 23-Month standby arrangement for Pakistan, which was later enhanced to 11.3 billion in July 2009. Pakistan was committed with IMF to introduce VAT from 1 July 2010, besides a number of other reforms. However, Finance Minister, Abdul Hafeez Shaikh, in his budget speech announced that the VAT would be introduced from October 1, 2010. Much to the annoyance of IMF, the promise was not honoured even in October 2010 and beyond. Resultantly, the tranche of US$ 1.7 billion was deferred with the condition that it would not be released unless Pakistan fulfilled its commitment of introducing VAT - government has camouflaged it by calling Reformed General Sales Tax (RGST) to avoid public criticism.

Even after re-appointment as Finance Minister, Mr. Abdul Hafeez Shaikh has yet not unveiled any strategy how RGST Bill, presently pending in National Assembly after being passed by Senate, would be made acceptable to all. He is on record to claim that huge money has been spent by vested interests to resist RGST as it would lead to 'documentation of economy' and 'better tax compliance'. While addressing IBA convocation in Karachi on December 4 2010, he said "One-third of the country's population is below the poverty line and the elite are still reluctant to pay taxes and are resisting reforms."

What is preventing Mr. Hafiz Shaikh to bring these 'vested interests' in the tax net? The worthy minister should be taking the higher-ups of Federal Board of Revenue (FBR) to task for their dismal performance. In fact, they are the ones who are responsible for the present pathetic state of affairs. Since 2002, the FBR has been receiving millions of dollars from the World Bank and other donors for Tax Administration Reforms Programme (TARP) - after expiry in 2009 this programme has been extended till end of 2011 despite utter failure - but our tax-to-GDP ratio remains one of the lowest in the world. If the FBR has failed to tax the elite, despite availability of stringent tax codes and sufficient manpower, the blame cannot be shifted to others using the oft-repeated phrase 'there is lack of political will to tax the rich". It is an established fact that despite resorting to all kinds of highhandedness, data manipulation, blocking genuine refunds, harsh tax policies and unjust withholding taxes, the FBR has failed to improve the tax-to-GDP ratio - it dropped to 8.87% in 2009-2010 from 12.5% in 2001-2002. The provinces have also failed to collect agricultural income tax and laws enacted to this effect remain dormant or unenforced. Over a period of time, the incidence of regressive taxes, shamelessly levied on the poor, has been increasing-making the powerful sections more and more rich. Progressive taxes like wealth tax, estate duty, capital gain on immovable property and gift tax were abolished to benefit the rich, thus distorting the entire tax system, creating income inequalities, widening the rich-poor divide and retarding economic growth.

When regressive taxes - sales tax and presumptive taxes, under the income tax code-were imposed in 1990 and 1991, our fiscal deficit was just Rs. 80 billion. After 20 years, our fiscal deficit has soared to over Rs. 900 billion, proving beyond any doubt that irrational taxes do not solve fiscal management; rather they can force a nation towards total economic collapse. Irrational tax measures have always played a decisive role in destroying civic society and paving the way for anarchy and chaos. This is exactly what the rulers are doing in Pakistan.

Table A: Direct & indirect taxes collection for FY 2009-2010

The commitment of enforcing VAT with IMF can still be made acceptable to all political parties by adopting a middle path. The right course would be to impose it at a reasonable rate - between 6% to 8% as is the case of Japan and Singapore, two developed economies of the world. It would not only fulfill contractual obligation with donors but bring more revenues and at the same time avoid an unbearable tax burden on the poor and middle class population. The claims of the Finance Minister and other spokespersons of the government that 15% tax on essential items would be bearable for the poor are simply incorrect. Due to regressive taxation, more and more people are being pushed below the poverty line, economy is in deep recession, people have no jobs and yet our economic wizards are justifying more taxes - this is certainly bad economic policy and cruel governance.

Fiscal policy in Pakistan has become a tool of oppression. Over the last 30 years, 2% of total population has accumulated 80% wealth without paying any personal taxes whereas total number of persons living below the poverty line is now 65 million. The country, due to inept leadership and corrupt government structures, is piling up huge debts - external debt till 2015 would increase to US$ 75 billion from the present figure of US$ 55.

The country's total foreign and domestic debt at the beginning of 2011 has touched the dangerous mark of almost Rs 11 trillion. The government is continuously borrowing heavily to meet its burgeoning budgetary deficit. According to the State Bank of Pakistan, domestic debt increased to Rs. 4.958 trillion by September 2010, from 4.018 trillion in September 2009. The external debt of the government increased to Rs. 3.864 trillion in September 2010 from Rs. 3.656 trillion in September 2009. By September 2010, foreign debt was $58.41 billion as against $55.62 billion in June 2010, showing an increase of $2.79 billion in three months.

By the end of 2010, our domestic debt went up to Rs. 5.50 trillion as a result of the government's insatiable borrowing quest. In September 2010, the domestic debt and liabilities were Rs. 5.191 trillion, which registered an increase of Rs. 306 billion in just three months. During 2009 to 2010, domestic debt showed an alarming growth of Rs. 1.05 trillion. In December 2009, domestic debt/liabilities stood at Rs 4.447 trillion rupees which increased to Rs 5.5 trillion by December 2010. Instead of accepting harsher and harsher conditions of foreign donors, our rulers should be making efforts to break the debt shackles by increasing revenues to the tune of Rs.4-5 trillion and reducing the expenditure of the monstrous government apparatus.

Our financial managers are caught in a dilemma. On the one hand there is a mounting pressure from the donors to reduce fiscal deficit through improved collections and on the other the ailing economy is not in a position to meet the ever-growing revenue targets. The collection figures released by FBR from July 2010 to January 2011 are showing negative growth in indirect taxes and marginal increase in direct taxes (even though this increase is also due to withholding huge refunds).

The revenue collection by imposing RGST, as admitted by the government, would be meagre, whereas progressive taxes like wealth tax and capital value tax on transfer of expensive immovable property - incidence of which would be on wealthy classes alone - could fetch not less than Rs. 400 billion. Wealth tax was criminally abolished in 2003. The rich and mighty in this country are increasing the tax burden on the poor and helpless masses, but are not themselves ready to pay wealth tax/income tax on their collossal wealth/incomes. It is high time that FBR publishes a complete directory of taxpayers and amounts paid by them during the last 20 years. Those who have failed to pay their taxes should be barred from taking part in any election or hold a government post. This would be a major change in election laws paving the way for reforms in democratic representation.

According to FBR, less than two million Pakistanis filed their returns up to December 31, 2010. According to Pakistan Telecommunication Authority (PTA), the country has now 100.2 million mobile users - all of whom pay 10% income tax on mobile use, irrespective of whether they earn taxable income or not, as well as 19.5% sales tax. How can FBR claim that our tax base is narrow? Many of these users, especially those paying Rs 25,000 and more annually to mobile companies, are either not filing income tax returns or even if they are filing are paying income tax much below their actual income. The issue of non-reporting and under-reporting of income has not effectively been tackled by the FBR till today. It is the duty of the FBR to issue notices for filing returns to all those spending Rs. 25,000 or more on mobile use alone. One wonders what prevents the FBR from doing so? Obviously the ruling elite does not seem to be behind this inefficiency!

Day and night we hear from official quarters about the narrow tax base in Pakistan and that people are not paying taxes. PPP stalwarts in TV talk shows and FBR through its spokesperson keep on levelling such baseless allegation completely oblivious to the fact that 100.2 million mobile users are taxpayers - though less than 1.5 million filed income tax returns. If our politicians, policy-makers and tax-wizards cannot distinguish between taxpayers and return filers, one doubts how they can reform the tax system, what to talk of enforcing invoice-based sales tax.

If the present policies continue as such we can never hope to improve either our tax culture or economy. The FBR high-ups and field officials suffer from an attitude problem besides being undoubtedly corrupt and inefficient. The honest ones in the FBR are even worse. They being sadists, are bent upon destroying everything around. They create such huge and obnoxious demands against existing taxpayers that it is no more possible for them to run their business. This attitude can be verified from various decisions of the Tax Tribunal where their arbitrary tax assessments are quashed, but the taxpayers pay a heavy price both in monetary terms and the mental torture/agony they suffer. It is strange that the FBR takes no action under the Efficiency & Disciplinary Rules against them even after their orders are held to be unlawful, excessive, arbitrary and unreasonable. If the higher courts pass strictures against the officials, no heed is intentionally paid to them and such officials are protected and at times even rewarded.

The zeal and enthusiasm of the tax machinery in harassing people is motivated by self-interest as they are more interested in meeting their individual targets, rather than those fixed for the State. Therefore, their conduct and working is always viewed with suspicion and distrust by the general public. There are a number of reasons for this reaction. Highhanded and corrupt tax officials have created a general atmosphere of distrust between the taxpayers and the State. Successive governments have failed to utilise the taxpayers' money in a transparent manner. The ruthless misutilisation of public money by the corrupt rulers has forced the people to openly defy the tax laws. The main reason for decrease in Foreign Direct Investment (FDI) is this prevailing situation in Pakistan. Foreign investors are reluctant to come to a place where tax officials demand their share for not participating in any productive process of the business.

Over the last many years, the need for tax reforms is stressed and reiterated by all quarters including the Government itself. However, each attempt in this direction during the last several years proved to be a complete failure - the case of Tax Administration Reforms Programme testifies to it. The main reason for this failure is that search for rationalisation and simplification of our tax laws is misdirected as we are living in an era of a complex and intricate global environment. Neither the official policymakers nor the professionals hired on behalf of IMF/World Bank possess the vision for this gigantic exercise, as they lack the understanding of the mundane realities of Pakistan - the stress for the introduction of the VAT in the absence of personal taxes is a classic example.

The most neglected area is quick dispensation of justice to taxpayers. Our tax appellate system is the worst in the entire world. The tax machinery is becoming ruthless with every passing day and almost every taxpayer has now become a victim of abuse of powers (arbitrary as well as unlimited!) at the hands of the tax officials. Those who do not pay taxes in connivance with tax collectors are satisfied and safe. For them not paying to the State is better than paying the tax collector for his self-aggrandisement. This is a pathetic state of affairs. The tax collectors want to achieve their unreasonable (sic) targets from a few corporate houses (by creating unjust demands), without bringing into the tax net those (presumably their "friends") who do not pay any tax. In these circumstances, the honest taxpayers get arbitrary tax demands and there is no effective justice system to come to their rescue. The Commissioners of Appeal, being employees of FBR, do what their bosses in the Board tell them to do and most of the time their decisions are heavily biased against the taxpayer, forcing him to seek equity at higher forums.

It is a mockery of justice that in the hierarchy of the tax judicial system, the first appellate authorities are directly subordinate to the FBR. Everybody knows the problems of these so-called Commissioners of Appeal, who are nothing but part and parcel of the revenue collection machinery. The judicial system under the tax codes, or for that matter under any statute, should be completely and truly independent of administrative interference or control. It is an essential prerequisite for ensuring proper tax compliance and confidence of the taxpayer in the system.

The present tax culture is based on "bad faith" between the taxpayers and the tax collectors. Both are victims of self-interest and their main aim is to cheat each other. This culture can only change if an effective judicial system is introduced and properly implemented. All tax appellate authorities-Commissioners of Appeal and Tribunal- should be part of judicial service working under the administrative control of respective High Court. The present working of Commissioners of Appeal under FBR and Tax Tribunal under the Ministry of Law is against the principle of "independence of judiciary". The Tribunal as well as first appellate forum should work under the High Court of their territorial jurisdiction. The same system is presently in vogue for civil judges.

The Tax reform agenda will never succeed in Pakistan unless we bring transparency and faith in our tax system. If people get direct benefit of taxes, they would be more than eager to pay their dues. When they see that rulers waste billions on their comforts and luxuries and corruption is rampant they hesitate to pay their taxes. When they are subjected to arbitrary taxation, the justice system does come to their rescue. The corrupt officials get the benefit of the laxity of judicial organs. Tax Appellate system - like all other judicial institutions - should be independent in the true sense of the word. The apex court of Pakistan has elaborated this principle in Government of Balochistan v Azizullah Memon PLD 1993 SC 31 by holding that "separation of judiciary from the executive is the cornerstone of the independence of judiciary". This should be equally applicable to the tax appellate system. In the absence of independent tax appellate system, all efforts to improve the system are bound to fail miserably.

Our economy will never flourish unless we make our tax policies growth-inductive and business-friendly. The National Tax Policy should be devised with a 2025 vision with the consultation and participation of all the stakeholders. Once the consensus policy is reached, the real challenge of its implementation should be ensured. We have weak implementation structures that need to be reformed immediately. Presently, the Inland Revenue Service and Pakistan Customs Service are full of incompetence, inefficiency and corruption. The Revenue Service of Pakistan should be a modern, efficient and effective organisation to tap the real tax potential of Pakistan, which is not less than Rs. 5 trillion.

(The writers, tax lawyers, are Adjunct Professors at Lahore University of Management Sciences (LUMS)

There is a lot of controversy these days over the Reko Diq Copper and Gold project. A number of people have requested me to explain the rather complicated issue and hence this article. A foreign company Tethyan has completed exploration of the resource located in Chaghi, the famous place where Pakistan's first nuclear explosion was carried out, and has prepared and submitted a feasibility study for consideration and approval of the government of Balochistan. The company claims, and perhaps rightly so that it has spent some 200 million US dollar on the project studies and exploration over the past several years. The company expects that it is given mining rights pursuant to its exploratory efforts and investments. The company proposes to bring a foreign investment of 3.2 billion USD and has provided for spending 50% of the investment on local procurement of goods and services. For seemingly archaic confidentiality reasons, the company has refrained from revealing its feasibility study, which has created doubts and controversy in the mind of general public. The project is being opposed by many quarters. This article takes account of the debate and the arguments, attempts to build a picture of the project in terms of real numbers, develops proposals on royalty issue based on international practices and in conclusion broadly supports the project, while advising Government of Balochistan to avail the services of third party experts in contract negotiations with the company.

Project data

We do not have access to the feasibility study of the project and its numbers. The company has been releasing vague and variable global statements regarding potential income and revenues to Governments of Balochistan and the federation. It would have been in its own enlightened interest to release figures on important issues like royalty rates and mineral prices. However based on the project data released by the company on expected production volumes, a back-of-the -envelope calculation can be made, which provides the following projections based on currently prevailing prices.

Reko Diq project is located very close to the junction of the borders of the three countries, Pakistan, Afghanistan and Iran, at the western apex of the largest Pakistan District of Chaghi in Balochistan, where once Pakistan conducted its first nuclear explosions. The Iranian city of Zahedan should be about 100 kms or so from Reko Diq. The existing Saindak Metals is also located nearby.

Based on an annual production as proposed by the company of 200,000 tons of copper and 250,000 ounces of Gold in concentrate form, an annual sales turnover of 2.345 billion US dollars could be expected. At a 5% royalty on sales and a 25% share in equity of the Government of Balochistan would generate 158 million US dollars, while GOP would be netting 95 Million USD in corporate taxes, if tax exemption is not extended to the project. Foreign investor would be earning an after tax profit of 200 million USD per year. In this configuration, Pakistan side earns 244 million US dollars, 44 million USD more than the company. The proposed royalty offer should be a subject of negotiation and may be brought in line with the standard and usual royalty rate of 5% on sales value. In that case Pakistan revenue would total to a good 256 million USD. Over the project's life time, Pakistan Earns 12.2 billion USD and the company earns 10.0 billion USD. With this small proviso, one would like to support the project. Probably, the biggest impact of the project would be on the balance of payment with exports and foreign exchange earnings of more than two billion USD.

Let us take the example of Australian mining industry which is known for its size and profitability. In the year 2008-9, the profitability of mining industry remained highest, higher than any other sector of Australian economy, with a 37.1% pre-tax gross margin. However, nearly half the firms, usually smaller firms, remained in loss. This also means that large mining companies made even a higher than 37.1% margin. This is in a period when mineral prices are exceptionally high. More realistic and conservative estimates of profitability (before tax) in Australian mining sector put it at 15-16%.

Many argue that there is significant price manipulation especially in Copper. We must not be afraid of high profits, as GOB is going to have a 25% share in equity. There may be downturns also, with low demand and low price which can go down below the cost of production.

Valuation of the Reko Diq deposit

Let us have an appreciation of the realistic valuation of the Rek deposit. It all depends on what price of copper is assumed. At this moment Copper is being quoted at 4.35 USD per lb. It had gone to as high as 5 USD in 2007-8 and it was only 1.00 USD per lb in1996 to 2003.It was only 0.5 USD per lb only in 1980s, which made Saindak project unfeasible for many years and later went into losses for the same reason. These prices may come down again from the present day high. Tethyan has revealed its calculation basis at 2.2 USD per lb as a long term average price, which may be taken as reasonable. Gold can be expected to continue to go high and a price of 1200 USD per Oz appears to be a reasonable assumption.

As revealed by the company on its website, the total Reko Diq deposit is of 5.9 billion tons, out of which 2.2 billion tons has been declared as economically feasible. Ore composition averages at 0.41% of copper and .22 Gms per ton of gold, which is rather low grade. The company proposes to mine the richer parts with an average of 0.53% of Copper and 0.3 Gms per ton of gold. At these prices, the total surface value of the deposit comes out to be 96 billion USD, out of which one-third would be gold and two-third would be Copper. It must be borne in mind that, it is the surface value which is obtained by putting in some two-third of this figure as a production cost. To realize the 100 billion USD of the asset value, 70 billion USD has to go towards production costs. Its valuation in buried form, as it is today, may be computed as the present value of earning streams to the parties involved. As a rough measure, it can be valued at the royalty rate for Pakistan, which comes out to be only 4.79 billion USD.

The arguments against

The foreign company led investment project involving three billion US Dollars is being opposed by various quarters. Firstly, there is a general and usual argument of Baloch exploitation with generalities and statement of lot of generally known grievances , which are not specific to this project alone. Their specific complaint is that they get very little out of the exploitation of their natural resources. They have very little say or control on such projects and that most Baloch cannot even enter those project areas, as those are declared as "sensitive" installations. Secondly, there are those who think that government of Balochistan is not getting a fair deal from the company and that it should get more than what has been offered. They believe that international tendering would have resulted in a better deal.

Thirdly, there are objections on project structure whereby refining and smelting has been proposed by Tethyan to be done abroad by third parties. The objectors argue that refining and smelting must be done locally to have higher component of local value added .Fourthly, there is a section of a very powerful scientific community belonging to the nuclear programme that argues that such a valuable project should not be handed over to foreign companies at all and that the government of Balochistan stands to get much more income if their proposition and approach is accepted. They claim that having built the bomb, they have acquired practical expertise over a number of minerals and its value chain and that they can do it and should be involved. They have made similar claims with respect to Thar Coal and have been provided the resources to prove their point on a small scale.

Let us examine the merit of these arguments one by one. The Baloch question and the point of view of nationalist circles is too broad an issue and have many facets. Most readers would be familiar with it. It requires a separate space to elucidate on it; hence we drop the very first objection as mentioned earlier. However, we would keep in view the genuine issues as pertaining to this project. Let me bring in some facts and back ground data.

The resource curse and the political economy

Many economists dislike mineral sector and have coined the term of Resource Curse. They question the rationale and impact of mineral sector on the welfare of the host countries. The evidence is divided, of the countries who have lost and who have prospered as a result of mineral production and exports. They cite that except for small population of oil producing countries and a few other mineral countries in developing countries, most others are basket case poor countries despite their large mineral resources and their extraction and exploitation.

This scribe is not very fond of mineral exports either and often has sided with the "resource curse" argument. The mineral resource has often caused dissension among the sections of the mineral countries and has resulted in much political instability and in-fighting. However, Pakistan is today passing through a critical period and is in great need of exports, foreign exchange and investments and priming of employment-generating economic activity. And these arguments can be postponed for better times. We have to evaluate the project not only in the long-term but also in its short to medium run impact, which seems to be positive and value-enhancing in the light of the afore-mentioned data.

The real contention may, however, lie within Pakistan, as Baloch nationalists, if not the government may argue that the federal government makes more money than the royalty of the owners of the resource. This is a usual problem with mineral industries. The problem can be resolved with an appropriate sharing of corporate income tax from mineral resources among federal and provincial government. In several democracies including the US, provinces do collect or share in income taxes as well.

A review of world mineral sector

There are more than thirty countries where Copper is mined and more than ten countries where abundant Copper resources are there. It may be appropriate to mention here that China has recently acquired Copper deposits in Afghanistan ignoring Pakistan understandably, inter alia, to avoid an acrimonious debate that usually follows in Pakistan on such projects. There is no shortage of mineral deposits in the world especially of copper. International mining companies have options and usually they select easier and receptive locations. This, however, does not mean that we need not work for a better deal. Our demands and negotiations should be in line with the international practices and be competitive with other host countries. I have suggested elsewhere that foreign experts from multilateral agencies be inducted to assist in these negotiations so that reasonably maximum terms are negotiated and adequate protection and provisions are built in the long term contract of this nature.

The mineral sector is one of the most difficult areas of business. Metals are known to have a highly variable and cyclical price behavior. For several years there may be a glut resulting in depressed prices to be followed by a period of high demand and very high prices. International mining companies balance out the peaks and troughs through various business devices such as long-term contracts, diversifying investments across metals, region and timings of investments to be able to take care of such difficulties. So it is not just the technical ability and the initial investment requirements but having the infrastructure and wherewithal that enables them to stay in business and make profit for their share-holders. There should also be an objective and realistic appreciation of the valuation of mineral resources. A mineral buried in the earth hardly has a value share of 3-5% of the selling price of the mined ore. More than ninety-five percent of the value comes through expenditure and investment of the mining company, whether it is local or foreign. There are three income streams; royalty goes to the owner of the resource, which as per our constitution is the provincial government of Balochistan; profits go to the share-holders in proportion to their equity investments; and the corporate and personal taxes go to the federal government.

Royalty rates and practices

Royalty rates and practices vary a great deal among mineral producing countries; most fall within a range of 3-5% of sales value of the produce. Federal US charges 5% flat rate, while states like Arizona. Michigan charges 2-7% on adjusted sales values. China charges 2% on sales for Copper and 4% for Gold, in both cases with an additional 0.4-30 Yuan per ton depending on price conditions which may total up to 3% for copper and 5% for Gold. Arizona (US) provides for a minimum slab of 2%. Some countries allow a variable rate depending on the price variation of the minerals and some allow upward or downwards adjustments of sales value. In a few cases, royalty is linked to profits, which may be highly contentious and unfeasible in countries like ours. India charges 3.2% on sales, with the sales price objectively determined by LME prices. There is quite some scope of understatement and transfer-pricing if India-like precise criteria are not applied. In Western Australia (in federal countries, there is variation of royalty practices across the states and provinces), an interesting royalty practice is there, which may be relevant to the current debate in Pakistan with respect to the local processing of ore. In that country, 5 % royalty is charged on concentrates and 2.5% on processed metal. GOB could negotiate something on these lines. In slumps and recessions when metals demand is low, mineral producing governments allow discounts on contracted royalties in order to remain competitive and earn foreign exchange ,if nothing else. Thus a royalty of 5% on sales gross or net is the maximum that can be reasonably expected, and one should not go down below 3%. A variable rate within this range could provide for price variations and local processing incentives.

The Aynak counterpart project in Afghanistan

Aynak deposit is located in Aynak valley, situated only 20 kms from Kabul in the southwest. It used to be an Al-Qaida training camp. The copper deposit was extensively explored by the Soviets and later evaluated by the British Geological survey. Aynak has been termed as the second largest undeveloped copper deposit in the world. Its copper resource has been assessed as 240Mt at an ore concentration of 2.4%.

Aynak is reportedly much more profitable resource due to its high ore concentration of 1.95-2.4% as opposed to 0.41 % of Reko Diq. At an assumed price of 7100 USD per tonne, a constant revenue stream of 400 million USD per year for 30 years project life have been contracted for among the parties, perhaps slightly less than twice that offered in case of Reko Diq for an equal production volume. The proponent argues that the difference is due to the richness of Aynak deposit. Five times lesser earth has to be dug and processed in Aynak, than is required in the case of Reko Diq. These claims can be verified. But surprisingly and more importantly, the distribution arrangements are identical, i.e. 52% of the gross profit goes to the governments in both the projects. There is an exception, however. The government of Balochistan has to put in 25% in equity, which comes out to be 250 million US dollars. The proponent has offered to sweeten the deal for arranging the equity finance for the government of Balochistan as an interest-free loan.

Let us have a look at the figures of Aynak deposit, which may be comparable in the sense that the production volume of both the projects is identical; 220,000 tons per year for Aynak and 200,000 tons per year for Reko Diq. The Aynak project was fully explored by the Soviet Union under its occupation terms. However, the Afghan Aynak deposit is reportedly much richer than Reko Diq; 1.85 % metal content than 0.41 % of Reko Diq. This would mean that 3.7 times more earth in the case of Reko Diq may have to be dug and processed than Aynak. This may result in a proportionate increase in operating costs, with the variable differences due to technological choices. Reportedly, this has resulted in a much lesser project yield of 10-12%, which is on the lower side of the returns as compared to the other projects elsewhere. Please see the adjoining table reproduced from World Bank sources. No wonder the Chinese did not take interest in the Reko Diq and opted for more profitable fixed price arrangements in the Aynak deposit. Otherwise the Chinese presence in Balochistan and Pakistan is much more entrenched and welcome. They are involved in the Saindak project and are receiving muted criticism from the same quarters, which are opposing the Reko Diq/Tethyan project. The Chinese, perhaps, realised the potential of bickering and wrangling, innuendoes and downright embarrassment as is being currently witnessed.

The fixed price formula in case of Aynak

According to the unconfirmed reports, the CMG has offered a fixed price deal to the Afghan government guaranteeing a fixed amount per year irrespective of the ups and down in prices. It has been estimated that the cumulative revenue impact of both the deals, Reko Diq/Tethyan and Aynak/CMG, are almost identical and equivalent under certain price conditions i.e.13 Billion USD over the projects life-period to the host governments. Variable offers, as offered by Tethyan proposal, links royalties, profits and taxation income to the host government with the prevailing copper prices in the international market. Host government shares in the windfall profits and revenues and loses when the prices are low. Fixed price offers are easier for Chinese state companies which are less sensitive to the long-term risks. Fixed price offer would have been much more unacceptable in Pakistan politically under an atmosphere full of conspiracy theories, hyperbole and mistrust. On the other hand, the variable offer as made by Tethyan has not been fully comprehended by the general public. Whatever are the perceptions, real or imaginary, regarding the value and preciousness of the Reko Diq deposit, the host governments of Balochistan and Pakistan get their share under the formula. Under fixed price conditions, the scope for misunderstanding would have been much higher and would have been termed much more scandalous than it is being perceived currently. A fixed price contract would have been riskier entailing higher risk-laden interest rates for project finance.

On the other hand, the yearly proceeds and the present value of earnings in the case of Aynak project, would be almost double that of Reko Diq/Tethyan due to the shorter project life of the the Aynak, concentrating the revenues of 13 billion in half the period. This probably is the reward of higher ore concentration of Aynak, and partly perhaps the frugality of Chinese.

Why can't the same competitive process be adopted in case of Reko Diq?

Recently, a contract to develop and exploit the Aynak deposit has been awarded to a Chinese company, named China Metallurgical Group (CMG). Initially, out of a list of 14 international mining companies, 9 were shortlisted and invited to bid. Five companies submitted their bids, and the CMG was finally selected and was awarded a thirty-year lease. The World Bank has been providing technical support and a consulting company acted as transaction advisor. World-renowned NGOs are monitoring the contract implementation and the environmental issues. The whole process has been handled in a highly transparent, structured and technically sound manner, amidst grumbling by the losers that CMG has bribed the Afghan government.

The Soviets had done all the exploratory work for Afghanistan on the basis of which international bids were invited. In Pakistan, despite the claims of, "we can do it on our own", this preparatory exploration was lacking. By spending on exploration, the proponent secured an implicit right to get the lease, and perhaps consequent to the agreement between the proponent company and the government of Balochistan, details of which are not available in the open. Does this mean that Tethyan has got the right to unilaterally impose project terms and the results of its feasibility study? Not really. Negotiations should take place based on the announced Mineral Policy and Balochistan Mining rules and the generally accepted good practices and instances of comparable projects. Third party neutral services on which both the parties have confidence can be acquired to facilitate an amicable resolution and agreement.

The case for local processing?

Let us now come to the argument of local processing such as smelting and refining. Tethyan argues that, it has no experience in smelting and refining and cannot handle this difficult area. One is inclined to take this assertion with a pinch of salt, to say the least. They argue that if refining is feasible and attractive, other investors can be attracted and given the responsibility. In this scribes' view, a variable royalty rate formula ala - Western Australia, as mentioned elsewhere, could also be adopted in this respect to encourage local processing in time. We have also recommended in the following that the proponent consider and study the economics of local copper smelting, possibly in place of the proposed slurry pipe line of 689 kms for transporting 600,000 tons of concentrate from the Mine site to the Gawadar port. If copper smelting is implemented, there may not be a need for the pipeline. And the pipeline investment can be diverted to the smelting facilities. These proposals may, however, need not stall the project.

Direct foreign investment and the issues of government policy

And perhaps most critical of the argument and a legalistic question is whether government of Balochistan is obliged to award the mining contract to the investor Tethyan. There is a simple and reasonable question, as to why should a foreign company invest in exploration and bring the project to an implementation stage. They are not a foreign government or a donor agency. We did not hire them as contractors. They are to bring a foreign investment of 3.3 billion US dollars, largest in Pakistan history, in a highly discouraging security environment. LNG companies are dragging their feet on coming to Pakistan like many others who even do not consider Pakistan at all. There is a mineral policy and there are mining rules, under which the project has been designed as clarified by the Ministry of Petroleum officials. For years, Government of Pakistan and Balochistan have been lobbying such companies hard to come in and invest. There is hardly any appreciable foreign investment in mineral sector, although there is significant potential.

Successive governments including the present one have shunned the policies of launching public sector enterprises and privatization is being pursued. There is almost a national consensus around it. Even profitable enterprises like PTCL have been privatized and more are on the list including very profitable ones .It is one of the key options in reducing foreign debt and improving balance of payments. Attracting direct foreign investments is a declared government policy. It is ironic that some of the public servants have been allowed to speak openly against a project that has been cleared by responsible officials of relevant ministries. These persons should have been disciplined by the GOP.

Can we do it on our own?

The most difficult question is of development of these resources by our local scientists and technologists as mentioned before. This is a cherishable goal and the aspirations of our local scientist are laudable. But let us be slightly more realistic and objective. Firstly, it is not simply a technical issue; it is a business issue as well as has been noted earlier. It is one thing to handle something on a small scale in a non-commercial context, it is quite another to be able to handle large mining business and enterprise. And then where is the money. GOP does not have money at all, and the government of Balochistan has asked the foreign company to finance its share of equity through interest free loan; so much for the financial capability. And no matter how respectable, our scientists may be, would they have credibility before international lending agencies to finance the debt portion of more than 2.0 billion US dollars and where would the collateral come from. There are other projects where they can demonstrate their capabilities. There are other minerals lying unexploited. Why throw spanner so late in the day, when a project is to start its implementation. Mineral policies and rules should have been lobbied in favor of local development much earlier and should be reserved for future projects, if at all. And if they insist despite all these arguments, 10% of area could be allocated for them through negotiations with the company.

As to the local capability, it took the then Resource Development Corporation and its successors several decades to implement a much smaller Saindak project and we had to literally beg the Chinese to take over. Neither could we produce, nor finance and even could not sell the product. The country is under energy crisis and major large public sector projects are running under losses and subsidies. Among the few profitable ones, the national company ODGC could not increase its exploration activities despite considerable oil and gas potential. So where is the collateral to claims other than the non-commercial nuclear programme?

The mindset

Unfortunately having been under colonial rule for long, we seem to look into these things in the context of British East India Company. In an international economic climate when exports led growth and Direct Foreign Investment is being encouraged and widely practiced, such anti-foreign company attitude may be counter productive and untenable. This attitude has discouraged many foreign companies in the past and has prevented possible influx of foreign investment. The most recent case is of Senhua of China, which spent two years in Thar and made a reasonable offer. Bickering and uncooperative attitude sent them away, with the result that we are sitting on one of the largest coal deposits and are suffering under a persistent energy crisis. It is highly doubtful that any other mining company would make the offer for Reko Diq, if the present project fails to materialize. It would send the kind of wrong signals among investors abroad, that we can least afford.

Normally explorer has a preemptive or preferred right to develop and operate a mineral deposit, subject to the announced policies of the host country. Admittedly it is a large unprecedented project and many issues may not be spelled out by the broad policies. Neither should the government of Balochistan try to find legal loopholes to deny the foreign investors of their due right, nor should the foreign company assume an unlimited license to demand unreasonable terms. A negotiated settlement can be reached on the basis of usual international practices.

Potential fallout of the contract cancellation

What if the government of Balochistan unilaterally terminates the agreement? In that case, complicated international Chamber of Commerce proceedings may be invoked by the aggrieved party and make huge claims not only for recouping its investment but also for the loss of potential profit valuing in excess of 13 billion USD. Whether ICC would grant it, is an open question. Would the GoB be subsequently able to call international tenders? Litigation may stall international tendering and international companies may not adequately respond due to the insecure legal situation.

Would government of Balochistan be able to implement the project, financially and technically?

It says it will and states that it has provided for 2 billion rupees for the project in the budget against a requirement of 250 billion Rupees .In terms of technical capability they have the support of some glib talkers who know and can do every thing from Thar Coal to Copper mining to nuclear weapons and missiles.

One may be inclined to ask them, why didn't they applied their knowledge and skills in much simpler and less expensive exploration activity in the first place, to preclude any preemptory claims of foreign mining companies. And in that case, international tendering could have been done. Easier said than done. Results equivalent to international tendering can be obtained, as suggested earlier, through hiring third party services and the services of multilateral agencies such as the World Bank, IFC etc.

Transparency and oversight

Publishing and advertising convenient information is not enough. It should not try to hide behind its intellectual property rights. It should make its feasibility study public and may omit some technical details that it considers to be a trade secret. After all, it would have to submit feasibility study for financing agencies. And copper mining is no rocket science, unless it wants to hide some mineral finds, it ought not to conceal. It would be in the interest of every body that the foreign company does not adopt a secretive policy.

There have been wide allegations of corruption, under-reporting, accounting manipulation and many leakages on the part of multi-national mining companies. Often host government officials and mining companies engage in collusive corruption depriving the host country of its share in revenue, royalties, profit and foreign exchange. Under the cloak of business confidentiality, under-hand transactions are made. Many mineral countries are in perpetual bade shape, while the mineral companies have prospered along with the collaborating host government bureaucracy and politicians. A number of international initiatives on transparency in the mineral sector have been launched.

Many Western countries having sizeable mining industry operating abroad have joined these initiatives. Smaller provinces, especially Balochistan would be more susceptible to leakages and collusion due to the special political problems there. It may be advisable that GoP/GoB join these initiatives to ward off or ameliorate potential threats in this respect.

Conclusion and Recommendations

1) The proposed Reko Diq project is in national interest and it should be allowed without stalling it in unnecessary argumentation. It would bring in much needed foreign investment and would contribute in a meaningful way in energizing Pakistan's economy.

2) Government of Balochistan should adopt a transparent process in negotiations with the company with suitable advice and oversight. Government of Balochistan should engage the services of an independent professional transaction advisor to facilitate a reasonable agreement maximizing national and provincial interests in the framework of adequate profitability and international good practice. International tendering is not the only feasible option always.

3) Environmental aspects should be investigated adequately and requisite remediation provided for within the established rule and good practices.

4) The company is expected to adopt a more open policy towards releasing adequate information out of the feasibility study conducted by it. Trying to hide facts does not create confidence in the minds of the general public, either in Balochistan or elsewhere in the country. It would be in everybody's interest if all aspects of the projects are out in the open.

5) Consideration should be given to provide for producing blister Copper. The company has proposed a very capital intensive and risky transport system of installing a 682 kms long slurry pipeline. The same investment could be diverted to installing Blister copper facilities. Recognizing that copper smelting is an energy intensive operation, Flash smelting based on electric arc furnaces based on cheap electrical power from Iran could be considered as a technical option. The company has already offered a fund of one million US dollars for undertaking the relevant feasibility study, which is a welcome step. A separate JV can be formed for this purpose, with a possible participation of Pakistan's private sector. The mining contract should provide for local sales, if and when such projects come up.

6) A railway track linking Reko Diq mine site with Gawadar airport would have been a more advisable option for concentrate transport. Reportedly that aspect was investigated and dropped in the least-cost perspective. The GoP may be asked to fund the additional finance, if required.

7) A 189 MW power project has been proposed, based on furnace oil based Internal Combustion Engines in a combined cycle mode. Pakistan is already burdened, with very large unsustainable oil imports. Reko Diq has Good Wind and Solar Thermal resource. It may also make a good commercial sense to have a wind-cum solar thermal based power generation, whereby the mines process heat requirements may be met through the wind-solar combine. Possibilities of imports of cheap electrical power from Iran may also be looked into, if nothing else, than to add to the projects energy-mix and security.

8) There is almost a national consensus on pursuing open economic policies encouraging FDI and privatization. It is in this spirit that even profitable companies like PTCL have been privatised. It would be highly unadvisable for the government to venture into the risky and the capital-intensive business of Copper mining. The government is already facing problems in meeting the deficits of the large public sector corporations. The claims of self-doing do not meet up to our robust enquiry and consideration. There are other Copper deposits in the area where local excellence and expertise can be adequately demonstrated. These would become more feasible, once the proposed project is implemented which may provide a pool of trained manpower.

9) The project deserves much more conscientious attention of all the stake-holders in the interest of the best outcome in the form of the earliest implementation maximizing national gains, without recourse to a possible international litigation that may not be in Pakistan's best of interests.

(The writer has been a former research fellow at Harvard University and author of a recently published book, "Pakistan Development Challenges)

]]>s.rs96@yahoo.com (Shoaib-ur-Rehman Siddiqui)Editorial & OpinionFri, 18 Feb 2011 08:34:28 +0000Pakistan Railwayshttp://www.brecorder.com/home/opinion/3406-pakistan-railways.html
http://www.brecorder.com/home/opinion/3406-pakistan-railways.htmlThe National Assembly Standing Committee on Railways has made several recommendations to steer the department out of its financial troubles, proposing among other measures, that the Rs 4 billion State Bank overdraft be waived or converted into equity, and that the government should take over the liability of foreign loans (worth Rs 26.6 billion) and pensions funds (Rs 6.50 billion annually). The committee also expressed concern that the government decision to cut developmental programme allocations has badly affected Pakistan Railways (PR), and that its budget has been reduced from Rs 13.6 billion to Rs 7.3 billion.

It goes without saying that the PR is an essential service and hence needs to be saved from the mess it has gotten itself into. Towards that end the government ought to take at least four steps. First, it must restore the previous system of a separate budget for the railways that is presented in parliament and approved by it; second it must clean the railways balance sheet of its losses and for doing this one possible option could be issuance of bonds as done in the case of Wapda and third, it is imperative for the government to undertake a restructuring exercise. The department must be run by a professional hand rather than political appointees who tend to use it to distribute jobs to party supporters and sympathizers, thereby overburdening it with people who have little to contribute but a lot to take out in the form of salaries and pensions. The NA committee while recommending restructuring has proposed transparent procedure for the selection of executive officers. More importantly, it said that the Railway Board should be reconstituted so as to include professional experts as its members. Fourth, there ought to be a substantial increase in the goods to passenger trains ratio. Since train is the common man's mode of transportation, fares are generally kept at a low level. The real source of revenue for the railways the world over are freight trains since they are the cheapest mode of land transportation and an efficient one, too. We have the example of India before us, where increase in freight trains has proven to be a major factor in making its railways a profit making entity. Considering that at present PR faces a severe shortage of locomotives leading to discontinuation of passenger services on many traditional routes, it would be advisable at this point to add, as far as possible, freight carriages to passenger trains. The best hope for the PR's turnaround is maximising goods transportation. The proposed restructuring effort must pay due attention to this aspect of the operations.

]]>s.rs96@yahoo.com (Shoaib-ur-Rehman Siddiqui)Editorial & OpinionFri, 18 Feb 2011 08:24:06 +0000Qureshi's exithttp://www.brecorder.com/home/opinion/3397-qureshis-exit.html
http://www.brecorder.com/home/opinion/3397-qureshis-exit.htmlThe PPP government has been speaking with different voices on Shah Mehmood Qureshi's ouster as foreign minister. Senior party leaders and ministers fired a barrage of criticism against Qureshi following his refusal to accept the offer of water and power ministry, and his public statement that after consulting people in the Foreign Office he did not think Raymond Davis, the American who shot dead two Pakistanis in Lahore, enjoyed blanket immunity as a diplomat. He was taken to task for not accepting the party leadership's decision to change his portfolio. The newly appointed Information and Broadcasting Minister Firdaus Ashiq Awan criticised him for 'creating a bad environment' regarding the Davis immunity issue. Awan even evoked ridicule - she was a member of the party General Musharraf patronised, PML-Q, until shortly before joining the PPP - as she took a personal dig at Qureshi alleging that he had left the cabinet because he was upset over the issuance of non-bailable warrants against the former dictator. All accused him of violating party discipline.

It is not lost on anyone that the issue at the heart of the storm is Raymond Davis' immunity; which has become extremely sensitive, both for its internal and external repercussions. Declaring an open season on Qureshi has not enhanced the party's public image, in fact, it has had the opposite effect. Still, the PPP Information Secretary Fauzia Wahab managed to put herself in the middle of a fresh round of heated debate on the subject. She insisted at a Karachi Press Club meeting on Monday that as per Pakistan's own law, which had incorporated both the 1961 and '63 Vienna conventions dealing with diplomatic immunity, Davis enjoyed diplomatic status and was therefore immune from any proceedings/prosecution in Pakistan. However, better sense prevailed in Islamabad where presidential spokesman Farhatullah Babar tried to calm things down, saying "Fauzia's statement is neither party policy nor government policy." It was hardly convincing though that she would have gone, on her own, to such great lengths as she did to make a case for Davis' immunity.

Matters between Qureshi and the party seem to have been resolved, with both sides having made conciliatory noises about each other. More importantly, the presidential spokesman iterated the party's "unambiguous and quite clear" position, saying that the issue is before the court and it is imprudent to comment on it. In fact, at least a week before the discipline violation controversy surfaced, both President Zardari and Prime Minister Gilani had publicly stated that the Raymond Davis case is sub judice and hence people should refrain from commenting on it; and that the court decision had to be respected. Hopefully, the ministers and party officials would now pay heed to their leadership's stated position and desist from offering any observations on the merits of the case or offering half-baked legal opinions until the court announces its verdict.

]]>s.rs96@yahoo.com (Shoaib-ur-Rehman Siddiqui)Editorial & OpinionFri, 18 Feb 2011 07:45:49 +0000Ill-conceived schemeshttp://www.brecorder.com/home/opinion/3394-ill-conceived-schemes.html
http://www.brecorder.com/home/opinion/3394-ill-conceived-schemes.htmlWidely advertised in the media and at various national saving centres throughout the country, the scheme to sell treasury bills to the general public seems to have died down with a whimper. According to reliable sources, the Ministry of Finance has finally blocked the initiative of the Central Directorate of National Savings (CDNS) for mobilising Rs 80 billion public savings through short-term treasury bills with a maturity period of three months to one year because of opposition from commercial banks and international lenders. Under the proposed scheme of the CDNS, treasury bills of three months, six months and one year were to be offered at the market-based interest rate of 12-13 percent per annum. The new initiative was launched on the premise that the government was already paying the same amount of interest on treasury bills to commercial banks, which were earning huge profits on government borrowings, without any extra effort and hence a saving scheme for common savers would not put any additional burden on the government and benefit the savers. In the past three years, national saving schemes have attracted Rs.750 billion, increasing the total portfolio to Rs 1.72 trillion by end-December, 2010.

We feel that the initiative of the CDNS had certain positive features but was largely not marketable in the prevailing culture of self-centred attitudes and the tendency of ordinary savers to continue following the old and simple patterns of making investment decisions. As it is, commercial banks do not generally pay to the ordinary depositors more than half the interest rates available on treasury bills and earn about 17 percent on their advances. Looking at this equation, it was a very good idea to offer more to the public directly at some cost to the banks, which are earning huge profits through an easy intermediation process. Also, it would have enhanced the awareness level of ordinary savers about the investment avenues available in the market and contributed somewhat in raising the saving rate in the economy. If the scheme could have become popular, it could have also some dampening effect on the prices of certain items ordinarily consumed by the targeted investors. However, the Ministry of Finance seems to have wilted under the pressure of commercial banks. Financial institutions feared that the new scheme would undermine the deposit base of the banking industry, because the depositors would withdraw their savings from the banks for investment in the treasury bills offered at the counters of the CDNS. Sadly, banks in Pakistan have come to prefer easy money and do not make extra efforts to mobilise higher level of savings by enlarging their coverage and designing attractive saleable products suitable to various sections of society.

The mistake on the part of CDNS, however, was not to conduct proper market research before launching the initiative. Our savers are not sophisticated enough to compare various investment options thoroughly and make informed financial decisions. Neither they have the capacity to engage the services of financial consultants. Therefore, they ordinarily prefer to continue investing in the old and tried schemes. Also, our savers avoid contact with the tax-man like the plague and would never like to have a meeting with him, even over a cup of tea and in a friendly atmosphere. Why bother about deploying their funds in treasury bills where some documentation may be needed when investment in Behbood Certificates and Pensioners Saving Accounts carries no such risk.

]]>s.rs96@yahoo.com (Shoaib-ur-Rehman Siddiqui)Editorial & OpinionFri, 18 Feb 2011 07:29:28 +0000Neglect of higher education will be suicidalhttp://www.brecorder.com/home/opinion/427-neglect-of-higher-education-will-be-suicidal.html
http://www.brecorder.com/home/opinion/427-neglect-of-higher-education-will-be-suicidal.htmlEDITORIAL (September 24 2010): Failure to resolve the ongoing tussle between the public sector universities and the finance ministry led the universities to close their doors last Tuesday in response to the announcement by their vice chancellors. That it brought about an immediate response from the government to reverse the cuts in their budgets, though welcome, is a sad testament to the fact that response of governments in Pakistan is directly proportional to the pressure applied.
]]>cisco228@hotmail.com (Abdul Ahad)Editorial & OpinionFri, 24 Sep 2010 11:05:24 +0000